VAT Refund Battle for the Pharmaceutical Sector
Glyn Edwards · Posted on: February 19th 2026 · read
This insight was co written by Glyn Edwards and John Rossiter.
The Upper Tax Tribunal has unexpectedly allowed HMRC’s appeal in a case against Boehringer Ingelheim (“BIL”) which was initially decided in the taxpayer’s favour by the First-tier Tribunal.
BIL supply branded pharmaceutical products to the NHS either directly or indirectly through wholesale distributors. The majority of BIL's supplies were to wholesale distributors in the UK and were liable to VAT at 20%. Prices of health service medicines supplied to the NHS were controlled by operation of voluntary and statutory schemes.
BIL participated in two voluntary price control schemes and made payments to the Department of Health and Social Care ('DHSC'). Payments were calculated by multiplying the relevant percentage under the relevant scheme by the sales within the scope of the scheme (i.e. the net sales of BIL’s branded medicines).
BIL’s view was that the amounts paid to the DHSC should have been treated as reducing the price of its supplies of health service medicines to the NHS and thus the VAT due.
The company therefore made a claim for repayment of overpaid output tax which was rejected by HMRC. The First-tier Tribunal agreed with BIL that the payments under the Schemes reduced the taxable amount and that BIL were therefore entitled to a VAT refund.
The Upper Tribunal has overruled that decision on very specific grounds. The Tribunal accepted that a retrospective discount ordinarily reduces the taxable amount and allows a supplier to reduce their output tax. However, this would only be the case if the end-customer received this discount. Unlike at the First-tier tribunal, the Judge found that the DHSC and the NHS could not be treated as if they were both the same entity. The NHS was the end-customer, and rebates paid to the DHSC were not received by the NHS.
Boehringer were therefore only entitled to a refund where the original supply was made to the DHSC. As those instances were rare, Boehringer’s claim was largely dismissed.
"This decision will have come as a surprise to Boehringer who have succeeded with similar claims in the EU after a judgement of the European Court of Justice. There are substantial sums at stake so an appeal to the Court of Appeal seems very likely."
Action Points:
- If a claim has been made and is rejected, then lodge a protective appeal.
- If VAT has been adjusted without HMRC’s knowledge, then notify HMRC of the amounts involved to minimise the risk of penalties. If/when HMRC issue an assessment, then lodge a protective appeal.
- Businesses that have not made a claim should still consider doing so, there is a four year time limit on error corrections and if Boehringer appeal, then it will be at least a year before their case is heard and decided.
